Abstract

This paper provides new evidence on how access to finance impacts technological innovation and establishes labor scarcity as a novel economic mechanism. We exploit antebellum America, a unique setting with (1) staggered passage of free banking laws across states and (2) well-documented differences in labor scarcity between free and slave states. We find that access to finance spurred technological innovation as measured by patenting activities, especially in free states where labor was relatively scarcer. Notably, in slave states, access to finance encouraged technological innovation that substituted for free labor but discouraged technological innovation that substituted for slave labor.

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